Beige Book Report: St Louis
September 9, 1980
Indications are that overall economic activity in the Eighth District has stopped declining. Retailers report that sales have improved somewhat and that inventories are at generally desired levels. Manufacturers of consumer durables, primary metals, chemicals, and paper products noted that sales have apparently bottomed out, and in some cases have increased. Residential building activity has also improved in the past three months; however, rising interest rates are expected to dampen further improvement. On the negative side, capital spending is reported to be declining somewhat more than expected. Not only are orders for capital goods deteriorating, but highway and other government construction projects are being reduced due to declining government revenues. Weather conditions generally improved in August, although rainfall was too late to substantially improve crop prospects.
Consumer spending continues to show some improvement over the depressed spring sales, but gains after adjustment for inflation have been modest. Department store retailers note that big-ticket items, particularly furniture and appliances, remain depressed. They also report that credit sales have increased but that cash purchases remain high relative to credit purchases. August car sales in the St. Louis area are reported to have been the best in the past year. Most retailers continue to report low profit margins, reflecting price cutting measures necessary to reduce summer inventories.
Inventories continue at generally desired levels. Some department store retailers, however, report that the stocking of fall items may have been excessive and that they are closely watching buying trends in order to quickly reduce these inventories if necessary.
Manufacturing activity may have bottomed out according to several respondents. While new orders are still at a low level, those producing appliances, housing materials, other durable goods and primary metals note a leveling off of sales. A firm producing boxboard, largely for food packaging, reports that sales have improved substantially and are now near the pre-recession level. A major chemical firm notes that overall sales are still at a low level, but that some recent improvement has occurred in fiber sales. Most capital goods firms report that orders have deteriorated somewhat more than expected, but orders remain strong for equipment used in the oil, gas, and defense industries.
Residential construction has picked up in recent months from the very low level of last spring, but recent increases in mortgage interest rates have clouded the prospects for further improvement. Mortgage interest rates have risen from approximately 11-1/2 percent to about 12-1/2 percent in the St. Louis area. Some builders have already noted a marked change in sales and express considerable pessimism about future sales. Builders also note that long-term mortgage loan commitments are nearly impossible to arrange, complicating their planning of new projects. Nonresidential construction has remained relatively high during the recession, however, highway and other government projects are now declining, reflecting reduced revenues from such sources as gasoline and sales taxes.
Financial activity has picked up slightly in recent weeks. Saving and loan associations officials report that mortgage loan demand has been rising, but with higher interest rates they expect loan volume to drop off somewhat. S and L officials also report that higher rates paid on deposits have substantially reduced profit margins again, and some firms are reacting by placing restrictions on the issuances of some types of certificates. Banks report increases in both loans and deposits in recent weeks. Bank loan volume has increased slightly for business and real estate loans, but consumer installment loans have remained essentially unchanged.
Agricultural production in the District has been severely affected by the hot and dry weather in June and July, particularly in Arkansas and Missouri. While weather conditions generally improved in August, the improvement came too late to help crop prospects substantially. For example, the Missouri corn crop is expected to be less than half the 1979 crop. Soybean production is expected to be down substantially in both Arkansas and Missouri, although recent rains will help improve yields of late plantings.